Universal Basic Income: To have or not for India?

A Universal Basic Income is basically a kind of social security scheme in which a person is guaranteed a minimum monthly income which he/she gets from the government. Many social commentators and economists have hailed UBI as the next great idea for social revolution. The Economic Survey of 2016-17 has laid down a vision for implementing the Universal Basic Scheme and has even quoted the Mahatma to sell the concept of the welfare of the poorest and weakest person in society. The UBI aims to replace the existing network of subsidies and other government schemes with the aim to reduce poverty. It has three components: universality, unconditionality and agency with the last condition specified to support cash transfers and not to dictate the people’s choices.

Arguments in favour of UBI

There are various arguments in favour of UBI. Firstly it seeks to stop and curtail the huge outgo in the current subsidies which has become grossly imprudent and inefficient. There are about 950 centrally sponsored schemes in India which are in operation but a majority of them have not able to reach the poor and suffer from misallocation, leakages and exclusion of the poor. In the 1980s, Rajiv Gandhi used to say that for every rupee spent by the government only 15 paisa reaches the poor. A recent NIPFP (National Institute of Public Finance and Policy) estimate has suggested that subsidies going to better off people amount to 5% of GDP. But with new age technologies and a combination of JAM (Jan Dhan, Aadhar and Mobile) with UBI the problems of identification of beneficiaries could be solved and subsidies could be targeted better further leading to administrative efficiencies. A successful example is the case of direct cash transfers in the case of LPG that has benefitted the poor people and stopped wasteful and corrupt LPG schemes. UBI is also portrayed as a society’s obligations towards it citizens in an era of automation, robotics, machine learning and jobless growth. International agencies see India as a prime example where the concept of UBI is expected to work compared to the developed countries as it has a weak safety net on many social schemes such as medical or retirement benefits. UBI will give individuals a safety net where they would not accept inhumane working conditions and therefore would not be exploited as happens in the private sector. Finally, the ultimate objective of UBI which most social commentators and economists agree is that the UBI may be the fastest way of eliminating poverty and bringing about social justice due to its concept of a stable society where citizens are free from any sort of exploitations and have a decent level of income. Unless and until the citizens are free and equal no society can be expected to develop.

Arguments against UBI

However, there are many counter arguments against implementing the UBI. One of the major arguments against UBI is that it reduces the incentive to work since people are assured that they will get a fixed income, so it will make them lazy and unproductive leading to a situation of moral hazard. But this argument has a weak base because the income support provided by the UBI will at best be supportive and would not be able to crowd out the incentives of working. Another issue is that the money given by the UBI might end up in being incurred on wasteful items such as liquor, drugs or cigarettes rather than on necessities such as food. But the major argument against UBI is the huge cost of financing such a scheme on this scale. Financing such a scheme would require massive outlays in the budget and other schemes and programs of the government are bound to suffer. Also, it might put a huge pressure on our already fragile banking system since they are expected to take the lead in providing financial access. There are also huge political costs involved for the ruling party and withdrawing out of such a scheme in the event of a failure would not be easy.

Way Forward

In light of the above problems, various solutions are advocated to help UBI become efficient and sustainable on a long term basis. For freeing up resources in the implementation of UBI, there is always the scope of greater taxation. Our tax-GDP ratio is already one of the lowest in the world and many areas such as agricultural income, long term capital gains and wealth are not taxed. So an introduction of fresh taxation for the rich and also diverting some of the non merit subsidies (around 7% of GDP) could go a long way in freeing up resources for provision of public goods. The UBI can also address the issues of misallocation and leakages by effectively targeting the beneficiaries through transferring money directly into their accounts and avoiding the bureaucracy altogether. So in a way, it leads to fewer leakages and easy monitoring. Also, the JAM trilogy could be effectively used to properly safeguard the system and ensure zero leakages. The government also has to see that it sticks to provide high-quality public goods including security, basic health, education, infrastructure etc and the UBI could be offered as a choice to current schemes so that the people not only have a greater choice but also negotiate with the administrators who are giving them benefits. Hence this will not only lead to improved living standards but also an improvement in the administration of current programs. Similarly targeting specific groups such as women in UBI programs could go a long way in ensuring success for this scheme as it has multiplier effects due to their important position in a household.

To conclude, a carefully crafted and constructed UBI is the need of the hour especially in these uncertain times of automation, worldwide instability and low economic growth. Even if the concept of UBI is not implemented today one could have a detailed discussion about its future because it is a concept which is of paramount importance to a developing nation like India where large sections of the population still reside below the poverty line.

Rohin is working for a top economic policy thinktank, ICRIER (Indian Council for Research on International Economic Relations). His research focuses on issues related to food and agriculture sector, trade issues and development sector policies. He completed his Masters in Economics from Madras School of Economics.